Small business owners might not be on board with the corporate tax code reform that the White House is reportedly working on, according to the New York Times, unless it comes along with reforms to the individual tax code as well. According to the Times, this “corporate tax overhaul,” which would be the conclusion of the process begun in January by Treasury Secretary Tim Geithner, “has explored the willingness of business leaders to sacrifice loopholes in return for lowering the top corporate tax rate, currently 35 percent.” That tax rate could be reduced to as low as 26 percent.
“Our members are definitely in support of reforming the tax code,” said Molly Brogan, vice-president of public affairs for the National Small Business Association. But, she added, “doing it at the corporate level doesn’t do a lot for most businesses. You have to reform the individual tax code as well.”
According to the NSBA’s data, 83 percent of small businesses are set up as pass-through entities, meaning that their business income counts as personal income, so “that’s where they pay taxes, at the individual levels,” explained Brogan.
“Without addressing individual incomes and reforming those, you’re going to miss the majority of small businesses,” she said.
The National Association of the Self-Employed echoed her response.
“The thing to keep in mind is general corporate tax reform is fine, but if you want to really effect the small businesses, you need to address the individual income tax reform because that’s what’s going to make a difference,” said spokesperson Kristin Oberlander.
“We just want to make sure that individual tax rates are addressed as well cause, you know, for small business to continue being a growth engine, there needs to be some tax reform.”
Brogan said that without individual reforms, corporate tax reform might even hurt small businesses. Small businesses are permitted to take some credits and deductions, such as Section 179 expensing and bonus depreciation, which allows them to spread out costs or losses over an extended period of time. Since small businesses wouldn’t get the benefit of the lower top corporate tax rate, if they lost those, they would actually end up losing money from the reform.
“[Reform] can’t just be on one side,” concluded Brogan. “It has to be a comprehensive simplification.”
The U.S. Chamber of Commerce declined to comment without knowing further details of the proposed reform.